Start with your own number
Every figure in this article comes from Bridge91’s Employee or Contractor calculator at its default settings: Tax Year 2026-27, the new tax regime, and a client abroad or an Indian company that claims GST credit. Put in your own package and the kind of client you bill, and it shows your take-home both ways, line by line.
The short version:
- As an employee, you are taxed on your whole salary at slab rates.
- As a contractor in a qualifying profession, you are taxed on half your fees.
- The gap is widest between ₹25 lakh and ₹75 lakh. Above ₹75 lakh the presumptive scheme stops, and most of it closes.
- What you give up is real: PF, paid leave, health cover and notice protection become yours to fund.
1. Check that you qualify for section 58
Section 58 of the Income-tax Act, 2025 (section 44ADA under the 1961 Act) lets you declare 50% of your fees as income, with no books of account and no need to prove expenses. You qualify when all three hold:
- You are a resident individual, working on your own account rather than through a company or an LLP.
- Your work is a specified profession: IT and technical consulting, engineering, architecture, accountancy, law, medicine and similar professions.
- Your fees are within the limit: ₹50 lakh a year, or ₹75 lakh when no more than 5% of what you receive comes in cash.
Check what you actually do. Supplying staff, reselling software or running a product business is a business, not a profession, and does not get the 50% rate.
2. See what you would take home
Say a company will spend ₹25 lakh a year on you. As an employee you keep about ₹21.2 lakh. As a contractor under section 58 you keep about ₹24.1 lakh: ₹2.9 lakh more.
Here is the same comparison at six packages. Amounts are yearly, in rupees, after income tax, PF, professional tax and a contractor’s own compliance costs.
| Package | You keep as an employee | You keep as a contractor | Difference |
|---|---|---|---|
| ₹10 lakh | 9,25,600 | 9,82,600 | 57,000 |
| ₹15 lakh | 13,33,716 | 14,82,600 | 1,48,884 |
| ₹25 lakh | 21,16,460 | 24,06,600 | 2,90,140 |
| ₹50 lakh | 38,37,032 | 46,15,400 | 7,78,368 |
| ₹75 lakh | 53,70,175 | 67,25,400 | 13,55,225 |
| ₹1 crore | 70,12,175 | 73,00,236 | 2,88,061 |
Three things to read off it:
- The gain is biggest between ₹25 lakh and ₹75 lakh, where half your fees still sits in the lower slabs.
- Add back your PF for a fair comparison. As an employee, about ₹72,000 a year goes into your PF account on top of the figure above. At ₹10 lakh, that makes the salary the better deal.
- Above ₹75 lakh the 50% rule stops. At ₹1 crore you are taxed on your actual profit, and the gap falls back below ₹3 lakh.
3. Know where GST lands
As an employee, GST has nothing to do with you. As a contractor, you register once your yearly fees pass ₹20 lakh, and then you charge 18% GST. What that means depends entirely on who you bill:
| Who you bill | GST on your invoice | Effect on your fee |
|---|---|---|
| A client abroad | None: an export of services | None |
| An Indian company that claims GST credit | 18%, added on top | None: the company claims it back |
| An Indian client that cannot claim credit (many banks, hospitals and schools) | 18%, added on top | A real cost to them, so expect pressure on your rate |
The calculator shows each case side by side, including the 6% composition scheme for smaller contractors.
4. Weigh what you gain and what you give up
The take-home figure is only half the decision. This is what changes when you move from a salary to a contract, item by item:
| What changes | As an employee | As a contractor |
|---|---|---|
| Income tax | Nil on a salary up to ₹12.75 lakh, then slab rates on the whole salary | Nil on fees up to ₹24 lakh, because only half is taxed |
| Provident fund and gratuity | Come with the job | Yours to fund |
| Paid leave and notice | In your contract | None, unless you price them in |
| Health cover | Usually your employer’s group policy | Your own policy |
| Paperwork | Your employer runs TDS, so your return is simple | GST registration above ₹20 lakh, advance tax, TDS matching |
| Cash flow | Paid monthly, net of tax | Indian clients deduct 10% TDS, which comes back only as a refund |
| Loans and visas | Salary slips make both easier | Lenders usually ask for two to three years of returns |
| Other work | Usually limited by your contract | Several clients, at your own rates |
Price what you give up before you switch. PF, gratuity, leave, health cover and notice protection have a cash value. Add them to the employee column before you compare.
5. Make sure you are a genuine contractor
Calling yourself a contractor does not make you one. The tax department and the Labour Codes look at how you actually work, and these signs point to employment:
- The client decides how, when and where you work, and sets fixed hours.
- You sit inside the client’s team: a company email address, a reporting manager, appraisals and leave approvals.
- You work only for that client, on the client’s equipment, with no commercial risk of your own.
If the engagement is reclassified, you lose section 58: your income becomes salary, taxed at slab rates on the whole amount. The company faces a TDS default on salary with interest, plus back-dated PF and Labour Code dues, which usually ends the engagement.
Protect yourself. Work under a written agreement drafted for Indian law that covers scope, deliverables, IP assignment, confidentiality, invoicing and termination. Then work the way it describes: your own tools, deliverables rather than hours, and freedom to take other clients.
6. Choose your path
Take the salary when
- Your package is about ₹12 lakh or less, where tax is nil either way and PF tips the balance.
- You want PF, health cover, paid leave and salary slips a lender will accept.
- The role needs you full time, on fixed hours, inside one team.
- Your client cannot claim GST credit and the composition scheme is not open to you.
Take the contract when
- Your package is between ₹25 lakh and ₹75 lakh and your work is a specified profession.
- You bill a client abroad, or an Indian company that claims GST credit.
- Your work is genuinely independent: deliverables, your own tools, more than one client.
- You are ready to fund your own benefits and handle GST and advance tax.
Above ₹75 lakh, run your numbers case by case. The advantage shrinks sharply once section 58 stops.
7. Run your numbers, then set it up properly
Every figure above is a default. Change the package, the client, your PF basis and your expenses in the Employee or Contractor calculator and both paths update side by side. Two other tools help with the same decision:
- India take-home calculator: what a salary leaves you each month after PF, professional tax and income tax.
- India employment cost calculator: what it costs a company to employ you, so you know the budget you are negotiating against.
Whichever path you choose, Bridge91 can set it up for you and your client. The statutory work is directed by a Chartered Accountant and US CPA, formerly KPMG and PwC, who sits on our board.
- To stay on payroll: your client can employ you through Bridge91’s Employer of Record, with an Indian employment contract, payroll, PF, TDS, Form 16 and Group Health Insurance from day one.
- To work on contract: your client can engage you through Bridge91 CoR (Contractor on Record), with an agreement drafted for Indian law, TDS and Form 16A, and GST on every invoice.
- If you already work for a client abroad: see how Bridge91 works for professionals in India.
Book a free consultation, or write to contact@bridge91.com.
The assumptions behind these figures
- Tax Year 2026-27, the new tax regime, a resident individual under 60. Budget 2026 left the slabs, the ₹75,000 standard deduction and the ₹12 lakh rebate unchanged.
- As an employee: basic pay at 50% of the package, PF on wages capped at ₹25,000 a month, professional tax of ₹2,400 a year, and gratuity left out because it is paid only after five years.
- As a contractor: a specified profession with mostly non-cash receipts, taxed under section 58 up to ₹75 lakh. Accounting, GST filing and audit fees and professional tax come off the take-home.
- Not included: the old tax regime, employer health cover, leave encashment and the timing of TDS refunds.
This article is general information for Tax Year 2026-27, not tax or legal advice. Rates and thresholds change, so check your own facts before you decide, or talk to us.